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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 532555ISIN: INE733E01010INDUSTRY: Power - Generation/Distribution

BSE   ` 174.25   Open: 178.80   Today's Range 173.30
178.80
-3.20 ( -1.84 %) Prev Close: 177.45 52 Week Range 153.30
187.95
Year End :2017-03 

1. Disclosure as per Ind AS 24 ‘Related Party Disclosures’

a) List of Related parties:

i) Subsidiaries:

1. Bhartiya Rail Bijlee Company Ltd.

2. Kanti Bijlee Utpadan Nigam Ltd.

3. NTPC Vidyut Vyapar Nigam Ltd.

4. NTPC Electric Supply Company Ltd.

5. Patratu Vidyut Utpadan Nigam Ltd.

ii) Joint ventures:

1. Utility Powertech Ltd.

2. NTPC-GE Power Services Private Ltd. (Previously NTPC-Alstom Power Services Private Ltd.)

3. NTPC-SAIL Power Company Ltd. (Previously NTPC-SAIL Power Company Private Ltd.)

4. NTPC-Tamil Nadu Energy Company Ltd.

5. Ratnagiri Gas & Power Private Ltd.

6. Aravali Power Company Private Ltd.

7. NTPC BHEL Power Projects Private Ltd.

8. Meja Urja Nigam Private Ltd.

9. BF-NTPC Energy Systems Ltd.

10. Nabinagar Power Generating Company Private Ltd.

11. Transformers and Electricals Kerala Ltd.

12. National High Power Test Laboratory Private Ltd.

13. Energy Efficiency Services Ltd.

14. CIL NTPC Urja Private Ltd.

15. Anushakti Vidhyut Nigam Ltd.

16. Hindustan Urvarak & Rasayan Ltd.

17. Trincomalee Power Company Ltd.

18. Bangladesh-India Friendship Power Company Pvt.Ltd.

iii) Key Managerial Personnel (KMP):

Shri Gurdeep Singh Chairman and Managing Director

Shri A.K.Jha Director (Technical)

Shri S.C.Pandey Director (Projects)

Shri K.Biswal Director (Finance)

Shri K.K.Sharma Director (Operations)

Shri Saptarishi Roy1 Director (Human Resources)

Shri A.K.Gupta2 Director (Commercial)

Shri U.P.Pani3 Director (Human Resources)

Dr.Pradeep Kumar Non-executive Director

Shri Aniruddha Kumar Non-executive Director

Dr.Gauri Trivedi Non-executive Director

Shri Rajesh Jain Non-executive Director

Shri Seethapathy Chander4 Non-executive Director

Shri Prashant Mehta5 Non-executive Director

Shri K.P.Gupta6 Company Secretary

Shri A.K.Rastogi7 Company Secretary

1. W.e.f. 1 November 2016, 2. W.e.f. 3 February 2017, 3. Upto 31 October 2016, 4. W.e.f. 22 June 2016, 5. Upto 29 July 2016, 6. W.e.f. 22 March 2017 and 7. Upto 28 February 2017

iv) Post Employment Benefit Plans:

1. NTPC Limited Employees Provident Fund

2. NTPC Employees Gratuity Fund

3. NTPC Post Retirement Employees Medical Benefit Fund

4. NTPC Limited Defined Contribution Pension Trust

v) Entities under the control of the same government:

The Company is a Central Public Sector Undertaking (CPSU) controlled by Central Government by holding majority of shares (refer Note 21). Pursuant to Paragraph 25 & 26 of Ind AS 24, entities over which the same government has control or joint control of, or significant influence, then the reporting entity and other entities shall be regarded as related parties. The Company has applied the exemption available for government related entities and have made limited disclosures in the financial statements. Such entities with which the Company has significant transactions include but not limited to Coal India Limited, Singareni Coalfields Ltd., GAIL (India) Ltd., BHEL Ltd., SAIL Ltd., Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd.

vi) Others:

1. NTPC Education and Research Society

2. NTPC Foundation

e) Terms and conditions of transactions with the related parties

i) Transactions with the related parties are made on normal commercial terms and conditions and at market rates.

ii) The Company is assigning jobs on contract basis, for sundry works in plants/stations/offices to M/s Utility Powertech Ltd (UPL), a 50:50 joint venture between the Company and Reliance Infrastructure Ltd. UPL inter-alia undertakes jobs such as overhauling, repair, refurbishment of various mechanical and electrical equipments of power stations. The Company has entered into Power Station Maintenance Agreement with UPL from time to time. The rates are fixed on cost plus basis after mutual discussion and after taking into account the prevailing market conditions.

iii) The Company is seconding its personnel to Subsidiaries and Joint Venture Companies as per the terms and conditions agreed between the companies, which are similar to those applicable for secondment of employees to other companies and institutions. The cost incurred by the Company towards superannuation and employee benefits are recovered from these companies.

iv) The loan given to Kanti Bijlee Utpadan Nigam Ltd., a subsidiary of the Company, is at SBAR (State Bank Advance Rate) adjusted to half yearly rest presently 14.41 % repayable in 14 half-yearly installments starting from 3 April 2010 and last installment repaid on 31 March 2017. The loan of Rs.33.25 crore given to PVUNL, a subsidiary of the Company, is at 10 % p.a. (quarterly rest) repayable in two installments on 30 September 2017 and 30 September 2018. Another loan to Kanti Bijlee Utpadan Nigam Ltd. has been given during the year amounting to Rs.121.00 crore at 10 % p.a. (quarterly rest) repayable in two installments on 30 June 2019 and 31 December 2019.

v) Consultancy services provided by the Company to Subsidiaries and Joint Ventures are generally on nomination basis at the terms, conditions and principles applicable for consultancy services provided to other parties.

vi) Outstanding balances of subsidiaries and joint ventures at the year-end are unsecured and settlement occurs through banking transaction. These balances other than loans are interest free. For the year ended 31 March 2017 and 31 March 2016, the Company has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

vii) Refer Note 60 in respect of impairment loss on investment in Ratnagiri Gas & Power Private Ltd.(a JV Company).

As required by Ind AS 36, an assessment of impairment of assets was carried out and based on such assessment, the Company has accounted impairment losses as under:

a) Due to decrease in value in use in respect of plant and equipment of a Solar PV Station of the Company which is under ‘Generation of energy Segment’, an impairment loss of Rs.Nil (31 March 2016: Rs.4.48 crore) was recognised in ‘Depreciation/amortisation and impairment expense’ in the Statement of Profit and Loss. Also Refer Note 2 (j) in this regard.

During the year ended 31 March 2017, an amount of Rs.0.73 crore towards the impairment loss has been reversed due to increase in the value in use as compared to the carrying value of the Solar PV station.

For the Company, the recoverable amount of the PPE & intangible assets of the CGUs is value in use and amounts to Rs.1,42,042.78 crore (31 March 2016: Rs.1,40,717.96 crore). The discount rate used for the computation of value in use for the generating plant is 9.13% (31 March 2016: 8.98%) and for solar plant is 7.95% (31 March 2016: 7.83%).

b) The Company has an investment of Rs.974.30 crore (31 March 2016 and 1 April 2015: Rs.974.30 crore) in the equity shares of M/s Ratnagiri Gas & Power Pvt.Ltd. (RGPPL), a joint venture of the Company. RGPPL has incurred losses during last few years which has resulted in erosion of net worth of the Company. Also, value of RGPPL’s assets has declined during the period significantly more than would be expected as a result of the passage of time or normal use. Further, neither Power Block nor LNG Terminal (CGUs) of RGPPL are operating at their installed capacity from last many years. The recoverable amount of this investment has been assessed at Rs.191.35 crore and accordingly the Company has recognized an impairment loss of Rs.782.95 crore in respect of such investment and disclosed the same as ‘Exceptional items - Impairment loss on investments’ in the Statement of Profit and Loss.

Recoverable amount is based on the value in use as its fair value less cost of disposals cannot be estimated. Value in use of RGPPL has been arrived at by an independent expert after considering the proposed demerger scheme of LNG Terminal and Power Block which has been approved by its Board of Directors with effective date of 1 January 2016 and awaiting approval of NCLT, New Delhi. RGPPL is committed for implementing the plan pursuant to receipt of necessary approvals and has communicated the restructuring scheme to all stake holders.

The recoverable amount is based on the present value of future cash flows expected to be derived from the LNG terminal till 31 March 2037 and Power block till 31 March 2039. These periods has been considered based on the estimated useful lives of the respective CGU’s.

For LNG Terminal, following are the key assumptions which are based on the past experience and expected completion of breakwater facility in 2021 :

Capacity : FY 2018 till 2021 - 30 ships/year; FY 2022 onwards: 80 ships per year Utilisation : FY 2018-21 - 80%

FY 2022-25 - 55%

FY 2026 - 65%

FY 2027 and beyond - 70%

Annual escalation of tariff - 5%

For Power Plant, no growth rates has been assumed and the past experience has been considered for future cash flows which are expected to be derived from this CGU

The post tax discount rates used for the future cash flows are in the range of 9.4% to 11%.

Also Refer Note 6(h) in this regard.

i) Provision for obligations incidental to land acquisition

Provision for obligations incidental to land acquisition includes expenditure on rehabilitation & resettlement (R&R) including the amounts payable to the project affected persons (PAPs) towards land, expenditure for providing community facilities and expenditure in connection with environmental aspects of the project. The Company has estimated the provision based on the Rehabilitation Action Plan (RAP) approved by the board/competent authority or agreements/directions/demand letters of the local/government authorities. The outflow of said provision is expected to be incurred immediately on fulfilment of conditions by the land oustees/receipts of directions of the local/government authorities.

ii) Provision for tariff adjustment

The Company aggrieved over many of the issues considered by the CERC in the tariff orders for its stations for the period 2004-09 had filed appeals with the Appellate Tribunal for Electricity (APTEL). The APTEL disposed off the appeals favourably directing the CERC to revise the tariff orders as per directions and methodology given. Some of the issues decided in favour of the Company by the APTEL were challenged by the CERC in the Hon’ble Supreme Court of India. Subsequently, the CERC has issued revised tariff orders for all the stations except one for the period 2004 09, considering the judgment of APTEL subject to disposal of appeals pending before the Hon’ble Supreme Court of India. Towards the above and other anticipated tariff adjustments, provision of Rs.98.88 crore (31 March 2016: Rs.145.28 crore, 1 April 2015: Rs.148.10 crore) has been made during the year and in respect of some of the stations, an amount of Rs.162.49 crore (31 March 2016: Rs.154.51 crore, 1 April 2015: Rs.180.16 crore) has been written back.

iii) Others

Provision for others comprise Rs.68.24 crore (31 March 2016: Rs.65.35 crore, 1 April 2015: Rs.58.64 crore) towards cost of unfinished minimum work programme demanded by the Ministry of Petroleum and Natural Gas (MoP&NG) including interest thereon in relation to block AA-ONN-2003/2 [Refer Note 63 (b)], Rs.640.25 crore (31 March 2016: Rs.496.44 crore, 1 April 2015: Rs.440.35 crore) towards provision for cases under litigation and Rs.1.81 crore (31 March 2016: Rs.1.87 crore, 1 April 2015: Rs.6.03 crore) towards provision for shortage in property, plant and equipment on physical verification pending investigation.

iv) In respect of provision for cases under litigation, outflow of economic benefits is dependent upon the final outcome of such cases.

v) In all these cases, outflow of economic benefits is expected within next one year.

vi) Sensitivity of estimates on provisions:

The assumptions made for provisions relating to current period are consistent with those in the earlier years. The assumptions and estimates used for recognition of such provisions are qualitative in nature and their likelihood could alter in next financial year. It is impracticable for the Company to compute the possible effect of assumptions and estimates made in recognizing these provisions.

vii) Contingent liabilities and contingent assets

Disclosure with respect to claims against the Company not acknowledged as debts and contingent assets are made in Note 71.

24. First-time adoption of Ind AS

These are the Company’s first financial statements in accordance with Ind AS. For periods up to and including the year ended 31 March 2016, the Company prepared its financial statements in accordance with previous GAAP, including accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended). The effective date for Company’s Ind AS Opening Balance Sheet is 1 April 2015 (the date of transition to Ind AS).

The accounting policies set out in Note 1 have been applied in preparing the financial statements for the year ended 31 March 2017, the comparative information presented in these financial statements for the year ended 31 March 2016 and in the preparation of an opening Ind AS Balance Sheet at 1 April 2015 (the Company’s date of transition). According to Ind AS 101, the first Ind AS financial statements must use recognition and measurement principles that are based on standards and interpretations that are effective at 31 March 2017, the date of first-time preparation of financial statements according to Ind AS. These accounting principles and measurement principles must be applied retrospectively to the date of transition to Ind AS and for all periods presented within the first Ind AS financial statements.

Any resulting differences between carrying amounts of assets and liabilities according to Ind AS 101 as of 1 April 2015 compared with those presented in the previous GAAP Balance Sheet as of 31 March 2015, were recognized in equity under retained earnings within the Ind AS Balance Sheet.

An explanation of how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows is set out in the following tables and notes.

Optional exemptions availed and mandatory exceptions

In the Ind AS Opening Balance Sheet as at 1 April 2015, the carrying amounts of assets and liabilities from the previous GAAP as at 31 March 2015 are generally recognized and measured according to Ind AS in effect as on 31 March 2017. However for certain individual cases, Ind AS 101 provides for optional exemptions and mandatory exceptions to the general principles of retrospective application of Ind AS. The Company has made use of the following exemptions and exceptions in preparing its Ind AS Opening Balance Sheet:

i) Property, plant and equipment & Intangible assets

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment and intangible assets as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities.

Accordingly, the Company has elected to measure all of its property, plant and equipment and intangible assets at their previous GAAP carrying value.

ii) Borrowings

Ind AS 101 permits that if it is impracticable for an entity to apply retrospectively the effective interest method in Ind AS 109 ‘Financial Instruments’, the fair value of the financial liability at the date of transition to Ind AS shall be the new amortised cost of that financial liability at the date of transition to Ind AS.

The borrowings outstanding as at the transition date, consists of loans drawn more than fifteen years back, some drawls with multiple tranches in different financial years with varying interest rates. In some cases, the rate of interest on the loans was both fixed and floating in nature and drawl of the loans have been made in multiple installments with each drawl to be treated as a separate transaction for the purpose of computing the amortised cost. In case of some loans the drawl period stretches beyond 3-4 years and in case of loans with floating interest rate, the rates have been reset at frequent intervals and reset rates are also applicable for previous drawls from that date onwards. Implementing the requirement of amortised cost retrospectively is impracticable and also the amount is expected to be immaterial and hence the Company has amortised the transaction costs as an adjustment of interest expense of the term of the related loan w.e.f. the transition date to Ind AS i.e. 1 April 2015.

iii) Business combinations

Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date.

Accordingly, the Company has elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated.

iv) Designation of previously recognised financial instruments

Ind AS 101 allows an entity to designate investments in equity instruments at FVTOCI on the basis of the facts and circumstances at the date of transition to Ind AS.

The Company has elected to apply this exemption for its investment in equity instruments in PTC (India) Limited .

v) Arrangements containing a lease

Appendix C, Ind AS 17 requires an entity to assess whether an arrangement contains a lease at its inception. However, Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS. The Company has elected to apply this exemption for such contracts/ arrangements.

vi) Long term foreign currency monetary items

The Company has elected to continue the policy adopted for accounting for exchange differences arising from translation of long-term foreign currency monetary items recognised in the financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period as per the previous GAAP.

vii) Estimates

An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at 1 April 2015 are consistent with the estimates as at the same date made in conformity with previous GAAP. The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

- Investment in equity instruments carried at FVTPL or FVTOCI;

- Investment in debt instruments carried at FVTPL; and

- Impairment of financial assets based on expected credit loss model.

viii) Classification and measurement of financial assets

The Company has also elected the option under Ind AS 101 by not applying the requirement of Ind AS 109 in case of employee loans which requires that these shall be recognized initially at fair value and subsequently at amortized cost. As per the exemption, if an entity finds impracticable to apply retrospectively effective interest method, the fair value of the financial asset at the date of transition to Ind AS shall be the new amortized cost of that financial asset at the date of transition to Ind AS.

Notes to first-time adoption:

(a) Property, plant & equipment

On the transition date, the Company has capitalised certain items of spare parts which are meeting definition of property, plant & equipment as per Ind AS 16 as PPE. Under previous GAAP, these spare parts were recognised as Inventories. As a result, Company has recognised an amount of Rs.155.94 crore from inventories to PPE as at the transition date on which an amount of Rs.49.55 crore has bee n charged as depreciation with corresponding adjustment in retained earnings. For the year ended 31 March 2016, an amount of Rs.79.79 crore has been recognised from inventories to PPE. During the year ended 31 March 2016, value of inventory has increased by an amount of Rs.53.57 crore with corresponding increase in profit due to reversal of repair and maintenance expenses.

In addition to above, Ind AS 16 requires significant component parts of an item of property, plant and equipment to be depreciated separately. As explained in Note 1.C.1, the cost of major inspections/overhauls is capitalised and depreciated separately over the period to the next major inspection/overhaul. For the year ended on 31 March 2016, an amount of Rs.404.81 crore and Rs.10.17 crore has been capitalised under PPE and CWIP respectively, resulting in corresponding increase in profit due to reversal of repair and maintenance expenses. Depreciation on this asset was charged in the statement of profit and loss of Rs.106.04 crore.

Further, there was increase in net block as on 31 March 2016 to the extent of Rs.264.46 crore and decrease of Rs.0.10 crore in intangible assets due to capitalisation of spares & providing depreciation thereon with revised life, depreciation on spares capitalised from inventory, transaction cost adjustment, unwinding of discount on vendor liabilities, amortisation of leased land treated as finance lease, etc.

(b) Borrowings

Under previous GAAP, the Company has followed the policy of charging the transaction costs to the income statement or capitalized to property, plant and equipment as and when incurred. Under Ind AS, transaction costs are amortized as an adjustment of interest expense over the term of the related loan using effective interest rate method. The Company has raised foreign currency bonds/Notes, secured and unsecured loans from banks and financial institutions and other foreign currency term loans on which it has incurred transaction costs. The above resulted in reduction in borrowings as at 31 March 2016 by Rs.29.33 crore with corresponding reduction in profit or loss and CWIP by Rs.1.36 crore and Rs.27.97 crores respectively.

(c) Application of Appendix C, Ind AS 17

The Company has entered into power purchase agreements (PPAs or arrangements) with beneficiaries for generation and supply of electricity. Under the arrangements, beneficiaries pay fixed capacity charges primarily for recovery of capital cost, return on investment, fixed operations and maintenance expense and interest on working capital and variable energy charge primarily for recovery of fuel cost.

Under Ind AS, the amounts receivable under these arrangements have the substance of a lease under the provisions of Appendix C to Ind AS 17 as these arrangements are dependent on use of specific assets and convey the right to use those assets. The evaluation of the arrangements is based on the facts and circumstances existing at the date of transition of the lease. Based on these evaluations, the Company has identified that the arrangements entered into with its customer for one of the station (Stage I) and two stations are to be treated as leases, and analyzed with reference to Ind AS 17 for classification as either finance or operating leases. Accordingly, the arrangement in case of one of the Stage of a station is classified as finance lease and of two stations as operating lease.

Under previous GAAP, the respective power plants were capitalized as fixed assets and the amounts receivable from the beneficiaries were recognized as revenue from sale of electricity.

Under Ind AS, one stage of a station is treated as assets given on finance lease and the amounts receivable from beneficiary has been segregated into finance income, repayment of principal and service income and accounted for accordingly.

On transition date the carrying value of property, plant and equipment has been reduced by Rs.539.92 crore with corresponding increase in other non-current financial assets (finance lease receivable) by Rs.515.19 crore & other current financial assets by Rs.24.72 crore. Further, an amount of Rs.24.48 crore has been transferred from deferred revenue to retained earnings. During the year ended 31 March 2016, property, plant and equipment has been reduced by Rs.27.03 crore with corresponding increase in other current & non current financial assets (finance lease receivable). Further, revenue from sale of energy was reduced by Rs.110.38 crore with corresponding recognition of interest income on assets on finance lease under ‘Other operating income’ by Rs.84.25 crore and reduction in value of finance lease receivable by Rs.26.13 crore.

For stations treated as assets given on operating lease, the amount receivable from beneficiary has been segregated into lease income and service income and lease income is to be recognized in income on a straight line basis over the lease term.

During the year ending 31 March 2016, this adjustment has resulted in a decrease in revenue from sale of electricity by Rs.223.25 crore and corresponding recognition of Lease rentals on assets on operating lease under ‘Other operating revenue’.

(d) Financial liabilities

Under previous GAAP, liabilities such as payable for capital expenditure, retention money etc. are recorded at cost.

However, under Ind AS, liabilities in which the Company has a contractual obligation to deliver cash are classified as financial liabilities and recorded at amortized cost. Therefore, such financial liabilities have been discounted to present value since they do not carry any interest. The upfront benefit on transition date due to the discounting has been adjusted against the retained earnings. Further, interest cost on unwinding of discount has been capitalized to the cost of property, plant and equipment where such interest cost can be capitalized in accordance with Ind AS 23 ‘Borrowing cost’ otherwise charged off to statement of profit or loss.

The effect of the adjustments resulted in reduction of the value of other non current financial liabilities by Rs.411.65 crore along with corresponding increase in retained earnings as on the transition date. During the year ended 31 March 2016, value of financial liabilities was increased by Rs.29.27 crore by corresponding increase/(reduction) in statement of profit and loss, property, plant and equipment and CWIP by Rs.72.80 crore, (-) Rs.52.08 crore and Rs.8.55 crore respectively.

(e) Land under finance lease

Under previous GAAP, leasehold land was capitalized at an amount equal to the upfront payments made at the time of lease. However, under Ind AS, such leases are capitalised at the present value of the total minimum lease payments to be paid over the lease term. Accordingly, future lease rentals have now been recognised as ‘finance lease obligation’ at their present values. The effect of the adjustment has resulted in reduction in retained earnings by Rs.35.32 crore with corresponding increase in non current financial liabilities by Rs.32.18 crore and current financial liabilities by Rs.3.14 crore towards finance lease obligation as at 1 April 2015. During financial year 2015-16 there was increase in PPE by Rs.13.16 crore, reduction in CWIP by Rs.1.19 crore and increase in non current financial liabilities by Rs.7.68 crore and current financial liabilities by Rs.4.29 crore towards finance lease obligations. There was insignificant impact on profits.

(f) Fair valuation of Investments

Under previous GAAP, the company accounted for long term investments in unquoted and quoted equity shares as investment measured at cost less provision for other than temporary diminution in the value of investments. Under Ind-AS, the Company has designated quoted investments as FVTOCI investments. Ind-AS requires FVTOCI investments to be measured at fair value. The resulting fair value changes in these investments have been recognised in a separate component of equity (FVTOCI reserve) as at the date of transition and subsequently in other comprehensive income.

This has resulted in increase in retained earnings by Rs.85.08 crore with corresponding increase in value of financial assets - investments as at the date of transition. As at 31 March 2016, other comprehensive has decreased by Rs.20.28 crore with corresponding decrease in financial assets - Investments.

(g) Financial assets

Under previous GAAP, employee loans and other long term advances to be settled in cash or another financial asset are recorded at cost.

However, under Ind AS, certain assets covered under Ind AS 32 meet the definition of financial assets which include employee loans and long term advances to be settled in cash or another financial asset are classified as financial assets at amortized cost. Thus in case interest rate on such financial assets is lower than market rate, these financial assets have been discounted to present value.

The effect of the adjustments resulted in reduction in the value of financial assets - loans by Rs.177.63 crore and increase in value of other non-current assets by Rs.160.46 crore & other current assets by Rs.17.18 crore (towards the deferred payroll expenses) on transition date. During the year ended 31 March 2016, the value of financial assets - loans reduced by Rs.0.90 crore with corresponding increase in other non-current and current assets by Rs.0.92 crore and credited the statement of Profit and Loss by Rs.0.02 crore.

(h) Deferred taxes

Previous GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind-AS 12 - Income taxes requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of Ind-AS 12 approach has resulted in insignificant amount of deferred tax on new temporary differences and accordingly not recognised.

(i) Proposed Dividend

Under previous GAAP, the Company had accounted for proposed dividends relating to year ended 31 March 2015 in that year, though the approval of that dividend took place after the reporting date. Under Ind AS, proposed dividends do not meet the definition of liability until they have been approved by shareholders at the Annual General Meeting. Therefore, the Company has not recognized a liability for dividend that has been proposed but will not be approved until after the reporting date.

The effect of the adjustment is to increase the retained earnings by Rs.1,736.71 crores with corresponding decrease in provisions as at 1 April 2015 and Rs.1,732.63 crore as at 31 March 2016.

(j) Electricity duty

Under previous GAAP, sale of electricity was presented as net of electricity duty. Electricity duty was separately presented on the face of statement of profit and loss. However, under Ind AS, sale of electricity is presented inclusive of electricity duty. Thus sale of electricity under Ind AS has increased by Rs.729.20 crore with a corresponding increase in other expenses due to this change.

(k) Employee benefits

Both under previous GAAP and Ind-AS, the Company recognised costs related to its post-employment defined benefit plan on an actuarial basis. Under previous GAAP, the entire cost, including actuarial gains and losses, are charged to profit or loss. Under Ind-AS, remeasurements [comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets excluding amounts included in net interest on the net defined benefit liability] are recognised in Other Comprehensive Income.

As a result, profit for the year ended 31 March 2016 increased by Rs.38.35 crore (net of tax) with corresponding decrease in Other comprehensive income during the year.

(l) Other equity

Retained earnings as at 1 April 2015 has been adjusted consequent to the above Ind AS transition adjustments. Refer ‘Reconciliation of total equity as at 31 March 2016 and 1 April 2015’ as given above for details.

(m) Other comprehensive income

Under previous GAAP, the Company has not presented other comprehensive income (OCI) separately. Items that have been reclassified from statement of profit and loss to other comprehensive income includes remeasurement of defined benefit plans and fair value gain/loss on FVTOCI equity instruments. Hence, previous GAAP profit or loss is reconciled to total comprehensive income as per Ind AS.

(n) Rebate to customers

During the year ending 31 March 2016, Trade receivable has been reduced to the extent of Rs.508.46 crores towards rebate to customers.

(o) Deferred Revenue

On transition date an amount of Rs.24.48 crore has been transferred from deferred revenue to retained earnings and Rs.0.30 crore has been transferred from capital reserve to deferred revenue towards Government grant received. Further during the year ending 31 March 2016 an amount of Rs.125.03 crore has been transfered from capital reserve to deferred revenue towards Government grants received and Rs.0.13 crore transferred from deferred revenue to retained earnings.

(p) Impact of Ind AS adoption on the Statement of Cash Flows for the year ended 31 March 2016:

Cash flow from operating activities under Ind AS has increased mainly due to reclassification of other bank balances from cash and cash equivalents to working capital changes and reclassification of cash flow from investing activities as a result of recognition of certain property, plant & equipment as finance lease receivables, capitalisation of overhauling cost and capital spares as property, plant & equipment and reclassification of certain capital advances to other advances. Further, cash flow from financing activities increased mainly due to reclassification of grants received to deferred revenue.

25. Disclosure as per Ind AS 106, ‘Exploration for and Evaluation of Mineral Resources’

a) The Company along-with some public sector undertakings has entered into Production Sharing Contracts (PSCs) with GOI for three oil exploration blocks namely KG-OSN-2009/1, KG-OSN-2009/4 and AN-DWN-2009/13 under VIII round of New Exploration Licensing Policy (NELP VIII) with 10% participating interest (PI) in each of the blocks. In the case of Block KG-OSN-2009/1 & AN-DWN-2009/13, the Company along-with the consortium partners has decided to relinquish both the blocks and Oil and Natural Gas Commission (ONGC), the operator has submitted an application to Directorate General of Hydrocarbons (DGH) in this regard.

Based on the un-audited statement of the accounts for the above blocks forwarded by ONGC, the operator, the Company’s share in the assets and liabilities as at 31 March 2017 and income and expenses for the year is as under:

For the year 31 March 2017 and 31 March 2016, there are no income and operating/investing cash flow from exploration activities.

The exploration activities in block KG-0SN-2009/4 were suspended w.e.f. 11 January 2012 due to non-clearance by the Ministry of Defence, GOI. Subsequently, DGH vide letter dated 29 April 2013 has informed ONGC that the block is cleared conditionally wherein block area is segregated between No Go zone, High-risk zone and Permitted zone. As the permitted area is only 38% of the total block area the consortium has submitted proposal to DGH for downward revision of MWP of initial exploration period. DGH has agreed for drilling of one well and have instructed to carry out airborne Full Tensor Gravity Gradiometer (FTG) survery in conditionally and partial cleared area in lieu of MoD proportionate reduced 317 Sq KM 3D survey, 589 LKM of 2D survey and drilling of two wells.

ONGC has completed drilling of one well. Airborne Full Tensor Gravity Gradiometer (FTG) survery work is under progress.

b) Exploration activities in the block AA-ONN-2003/2 were abandoned in January 2011 due to unforeseen geological conditions & withdrawal of the operator. Attempts to reconstitute the consortium to accomplish the residual exploratory activities did not yield result. In the meanwhile, Ministry of Petroleum & Natural Gas demanded in January 2011 the cost of unfinished minimum work programme from the consortium with NTPC’s share being USD 7.516 million. During the year, provision in this respect has been updated to Rs.68.24 crore from Rs.65.35 crore along-with interest. The Company has sought waiver of the claim citing force majeure conditions at site leading to discontinuation of exploratory activities.

The Company has accounted for expenditure of Rs.0.07 crore (previous year Rs.0.06 crore) towards the establishment expenses of M/s Geopetrol International, the operator to complete the winding up activities of the Block. The Company’s share in the assets and liabilities as at 31 March 2017 and income and expenses for the year is as under:

For the year 31 March 2017 and 31 March 2016, there are no income and operating/investing cash flow from exploration activities.

c) The Company has entered into production sharing contracts (PSC) with GOI for exploration block namely CB-ONN-2009/5 VIII round of New Exploration Licensing Policy (NELP VIII) with 100% participating interest (PI) in the block.

Minimum Work Program (MWP) for the block has been completed. No oil or gas of commercial value was observed in any of the wells. Accordingly, proposal for relinquishment of the block has been submitted to GOI.

Based on the audited statement of the account for the above block, Company’s assets and liabilities as at 31 March 2017 and expenditure for the year are given below:

Expenses charged off during the year ended 31 March 2017 include opening capital work-in-progress of Rs.74.40 crore as at 1 April 2016.

For the year 31 March 2017 and 31 March 2016, there are no income and investing cash flow from exploration activities.

26. Disclosure as per Ind AS 108 ‘Operating segments’

A. General Information

The Company has two reportable segments, as described below, which are the Company’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Chief operating decision maker (CODM) reviews internal management reports on at least a quarterly basis.

The following summary describes the operations in each of the Company’s reportable segments:

Generation of energy : Generation and sale of bulk power to State Power Utilities.

Other operations : It includes providing consultancy, project management & supervision, oil and gas exploration and coal mining.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Company’s Board. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.

Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

B. Information about reportable segments and reconciliation to amounts reflected in the financial statements:

* Includes Rs. 995.59 crore (31 March 2016: (-) Rs. 1,642.91 crore) for sales related to earlier years.

** Generation segment result would have been Rs. 16,769.88 crore (31 March 2016: Rs. 15,855.68 crore) without including the sales related to earlier years.

*** Includes (-) Rs. 0.73 crore (31 March 2016: Rs. 4.48 crore) towards impairment loss/(reversal) recognised in the profit or loss, in generation of energy segment.

The Company has not disclosed geographical segments as operations of the Company are mainly carried out within the country.

C. Information about major customers

Revenue from two major customers under ‘generation of energy’ segment is Rs. 8,556.66 crore (31 March 2016: Rs. 8,631.32 crore) and Rs. 8,214.91 crore (31 March 2016: Rs. 6,632.01 crore) which is more than 10% of the Company’s total revenues.

The Company’s principal financial liabilities comprise loans and borrowings in foreign as well as domestic currency, trade payables and other payables. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include borrowings, trade & other receivables, and cash and short-term deposits that derive directly from its operations. The Company also holds equity investments and enter into derivative contracts such as forward contracts, options and swaps. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.

The Company is exposed to the following risks from its use of financial instruments:

- Credit risk

- Liquidity risk

- Market risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk.

Risk management framework

The Company’s activities make it susceptible to various risks. The Company has taken adequate measures to address such concerns by developing adequate systems and practices.

In order to institutionalize the risk manag ement in the Company, an elaborate Enterprise Risk Management (ERM) framework has been developed. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. As a part of the implementation of ERM framework, a ‘Risk Management Committee (RMC)’ with functional directors as its members has been entrusted with the responsibility to identify and review the risks, formulate action plans and strategies to mitigate risks on short term as well as long term basis.

The RMC meets every quarter to deliberate on strategies. Risks are regularly monitored through reporting of key performance indicators. Outcomes of RMC are submitted for information of the Board of Directors.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations resulting in a financial loss to the Company. Credit risk arises principally from trade receivables, loans & advances, cash & cash equivalents and deposits with banks and financial institutions.

Trade receivables

The Company primarily sells electricity to bulk customers comprising mainly state utilities owned by State Governments. The Company has a robust payment security mechanism in the form of Letters of Credit (LC) backed by the Tri-Partite Agreement (TPA). The TPA were signed among the Govt. of India, RBI and the individual State Governments subsequent to the issuance of the One Time Settlement Scheme of SEBs dues during 2001-02 by the GOI, which was valid till October 2016. Govt of India has approved the extension of these TPAs for another period of 10 years. Most of the States have signed these TPAs and signing is in progress for the balance states.

CERC Tariff Regulations allow payment against monthly bill towards energy charges within a period of sixty days from the date of bill and levy of surcharge @ 18% p.a. on delayed payment beyond sixty days.

A default occurs when in the view of management there is no significant possibility of recovery of receivables after considering all available options for recovery.

As per the provisions of the TPA, the customers are required to establish LC covering 105% of the average monthly billing of the Company for last 12 months. The TPA also provided that if there is any default in payment of current dues by any State Utility the outstanding dues can be deducted from the State’s RBI account and paid to the concerned CPSU. There is also provision of regulation of power by the Company in case of non payment of dues and nonestablishment of LC.

These payment security mechanisms have served the Company well over the years. The Company has not experienced any significant impairment losses in respect of trade receivables in the past years. Since the Company has its power stations as well as customers spread over various states of India, geographically there is no concentration of credit risk.

Investments

The Company limits its exposure to credit risk by investing in only Government of India Securities, State Government Securities and other counterparties have a high credit rating. The management actively monitors the interest rate and maturity period of these investments. The Company does not expect the counterparty to fail to meet its obligations, and has not experienced any significant impairment losses in respect of any of the investments.

Loans

The Company has given loans to employees, subsidiaries and other parties. Loans to the employee are secured against the mortgage of the house properties and hypothecation of vehicles for which such loans have been given in line with the policies of the Company. The loan provided to group companies are collectible in full and risk of default is negligible. Loan to APIIC is secured by a guarantee given by the Government of Andhra Pradesh vide GO dated 3 April 2003.

Cash and cash equivalents

The Company held cash and cash equivalents of Rs.157.12 crore (31 March 2016: Rs.1,372.40 crore, 1 April 2015: Rs.280.65 crore). The cash and cash equivalents are held with banks with high rating.

Deposits with banks and financial institutions

The Company held deposits with banks and financial institutions of Rs.2,773.37 crore (31 March 2016: Rs.3,088.38 crore, 1 April 2015: Rs.12,994.35 crore). In order to manage the risk, Company places deposits with only high rated banks/ institutions.

(i) Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

(ii) Provision for expected credit losses

(a) Financial assets for which loss allowance is measured using 12 month expected credit losses

The Company has assets where the counter-parties have sufficient capacity to meet the obligations and where the risk of default is very low. Accordingly, no loss allowance for impairment has been recognised.

(b) Financial assets for which loss allowance is measured using life time expected credit losses

The Company has customers (State government utilities) with capacity to meet the obligations and therefore the risk of default is negligible or nil. Further, management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk. Hence, no impairment loss has been recognised during the reporting periods in respect of trade receivables.

(iii) Ageing analysis of trade receivables

The ageing analysis of the trade receivables is as below:

(iv) Reconciliation of impairment loss provisions

The movement in the allowance for impairment in respect of financial assets during the year was as follows:

Based on historic default rates, the Company believes that no impairment allowance is necessary in respect of any other assets as the amounts are insignificant.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company has an appropriate liquidity risk management framework for the management of short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The Company’s treasury department is responsible for managing the short term and long term liquidity requirements of the Company. Short term liquidity situation is reviewed daily by Treasury Department. The Board of Directors has established policies to manage liquidity risk and the Company’s treasury department operates in line with such policies. Any breaches of these policies are reported to the Board of Directors. Long term liquidity position is reviewed on a regular basis by the Board of Directors and appropriate decisions are taken according to the situation.

Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a month, including the servicing of financial obligations, this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.

As part of the CERC regulations, tariff inter-alia includes recovery of capital cost. The tariff regulations also provide for recovery of fuel cost, operations and maintenance expenses and interest on normative working capital requirements. Since billing to the customers are generally on a monthly basis, the Company maintains sufficient liquidity to service financial obligations and to meet its operational requirements.

(i) Financing arrangements

The Company had access to the following undrawn borrowing facilities at the end of the reporting period:

(ii) Maturities of financial liabilities

The following are the contractual maturities of derivative and non-derivative financial liabilities, based on contractual cash flows:

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Company’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Board of Directors is responsible for setting up of policies and procedures to manage market risks of the Company. All such transactions are carried out within the guidelines set by the risk management committee.

The Company is exposed to foreign currency risk on certain transactions that are denominated in a currency other than entity’s functional currency, hence exposure to exchange rate fluctuations arises. The risk is that the functional currency value of cash flows will vary as a result of movements in exchange rates.

The currency profile of financial assets and financial liabilities as at 31 March 2017, 31 March 2016 and 1 April 2015 are as below:

Sensitivity analysis

As per the CERC regulations, the gain/loss on account of exchange rate variations on all long term and short term foreign currency monetary items (up to COD) is recoverable from beneficiaries. Hence, the impact of strengthening or weakening of Indian rupee against USD, Euro, JPY and other currencies on the statement of profit and loss would not be very significant. Therefore, sensitivity analysis for currency risk is not disclosed.

Interest rate risk

The Company is exposed to interest rate risk arising mainly from long term borrowings with floating interest rates. The Company is exposed to interest rate risk because the cash flows associated with floating rate borrowings will fluctuate with changes in interest rates. The Company manages the interest rate risks by entering into different kinds of loan arrangements with varied terms (eg. fixed, floating, rupee, foreign currency, etc.).

At the reporting date the interest rate profile of the Company’s interest-bearing financial instruments is as follows:

Fair value sensitivity analysis for fixed-rate instruments

The Company’s fixed rate instruments are carried at amortised cost. They are therefore not subject to interest rate risk, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

Cash flow sensitivity analysis for variable-rate instruments

A change of 50 basis points in interest rates at the reporting date would have increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for the previous year.

27. Fair Value Measurements

a) Financial instruments by category

b) Fair value hierarchy

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.

The Company has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements and reports directly to the Director (Finance). The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of Ind AS, including the level in the fair value hierarchy in which the valuations should be classified. Significant valuation issues are reported to the Company’s Audit Committee.

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes investments in quoted equity instruments. Quoted equity instruments are valued using quoted prices on national stock exchange. Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. This level includes mutual funds which are valued using the closing NAV.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. The fair value of financial assets and liabilities included in Level 3 is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes of similar instruments. This level includes derivative MTM assets/liabilities. Fair value of derivative assets/liabilities such as Interest rate swaps and foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models & present value calculations.

There have been no transfers in either direction for the years ended 31 March 2017, 2016 and 2015.

c) Valuation technique used to determine fair value:

Specific valuation techniques used to fair value of financial instruments include:

i) For financial instruments other than at ii), iii) and iv) - the use of quoted market prices

ii) For investments in mutual funds - Closing NAV is used.

iii) For financial liabilities (vendor liabilities, debentures, foreign currency notes, domestic/foreign currency loans):- Discounted cash flow; appropriate market borrowing rate of the entity as of each balance sheet date used for discounting.

iv) For financial assets (employee loans) - Discounted cash flow; appropriate market rate (SBI lending rate) as of each balance sheet date used for discounting.

d) Fair value of financial assets and liabilities measured at amortised cost

The carrying amounts of short term trade receivables, trade payables, capital creditors, investment in bonds, cash and cash equivalents and other financial assets and liabilities are considered to be the same as their fair values, due to their short-term nature.

The carrying values for finance lease receivables approximates the fair value as these are periodically evaluated based on credit worthiness of customer and allowance for estimated losses is recorded based on this evaluation. Also, carrying amount of claims recoverable approximates its fair value as these are recoverable immediately.

The fair values for loans, borrowings, non-current trade payables and capital creditors were calculated based on cash flows discounted using a current discount rate. They are classified at respective levels based on availability of quoted prices and inclusion of observable/non observable inputs.

For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.

28. Capital Management

The Company’s objectives when managing capital are to:

- safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and

- maintain an appropriate capital structure of debt and equity.

The Board of Directors has the primary responsibility to maintain a strong capital base and reduce the cost of capital through prudent management in deployment of funds and sourcing by leveraging opportunities in domestic and international financial markets so as to maintain investors, creditors & markets’ confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Company defines as result from operating activities divided by total shareholders’ equity. The Board of Directors also monitors the level of dividends to equity shareholders.

Under the terms of major borrowing facilities, the Company is required to comply with the following financial covenants:

(i) Total liability to networth ranges between 2:1 to 3:1.

(ii) Ratio of EBITDA to interest expense shall not at any time be less than 1.75 : 1

(iii) Debt service coverage ratio not less than 1.25:1 and account receivable ratio not exceeding 3:1 (in case of foreign currency borrowings)

There have been no breaches in the financial covenants of any interest bearing borrowings.

The Company monitors capital, using a medium term view of three to five years, on the basis of a number of financial ratios generally used by industry and by the rating agencies. The Company is not subject to externally imposed capital requirements.

The Company monitors capital using gearing ratio which is net debt divided by total equity. Net debt comprises of long term and short term borrowings less cash and cash equivalent. Equity includes equity share capital and reserves that are managed as capital. The gearing ratio at the end of the reporting period was as follows:

29. Disclosure as per Ind AS 114, ‘Regulatory Deferral Accounts’

(i) Nature of rate regulated activities

The Company is mainly engaged in generation and sale of electricity. The price to be charged by the Company for electricity sold to its customers is determined by the CERC which provides extensive guidance on the principles and methodologies for determination of the tariff for the purpose of sale of electricity. The tariff is based on allowable costs like interest, depreciation, operation & maintenance expenses, etc. with a stipulated return.

This form of rate regulation is known as cost-of-service regulations which provide the Company to recover its costs of providing the goods or services plus a fair return.

The Company is eligible to apply Ind AS 114, Regulatory Deferral Accounts. The standard permits an eligible entity to continue previous GAAP (Guidance Note on accounting for Rate Regulated Activities) accounting policy for its regulatory deferral account balances. Hence, Company has opted to continue with its previous GAAP accounting policy for such balances.

(ii) Recognition and measurement

As per the CERC Tariff Regulations, any gain or loss on account of exchange risk variation during the construction period shall form part of the capital cost till the declaration of Commercial Operation Date (COD) to be considered for calculation of tariff. The CERC during the past period in tariff orders for various stations has allowed exchange differences incurred during the construction period in the capital cost. Accordingly, exchange difference arising during the construction period is within the scope of Ind AS 114.

In view of the above, exchange differences arising from settlement/translation of monetary item denominated in foreign currency to the extent recoverable from or payable to the beneficiaries in subsequent periods as per CERC Tariff Regulations are recognized on an undiscounted basis as ‘Regulatory deferral account debit/credit balance’ by credit/debit to ‘Movements in Regulatory deferral account balances’ during construction period and adjusted from the year in which the same becomes recoverable from or payable to the beneficiaries.

Revision of pay scales of employees of PSEs are due w.e.f. 1 January 2017 (Refer Note 33). The recommendations of the constituted committee to the Government inter-alia includes superannuation benefits @ 30% of basic DA to be provided to the employees of CPSEs which includes gratuity at the enhanced ceiling of Rs.0.20 crore and the enhanced amount from Rs.0.10 crore to Rs.0.20 crore will be borne by the Company. As per Proviso 8(3) of Terms and Conditions of Tariff Regulations 2014 applicable for the period 2014-19, truing up exercise in respect of Change in Law or compliance of existing law will be taken up by CERC. The proposed increase in gratuity from Rs.0.10 crore to Rs.0.20 crore falls under the category of ‘Change in law’.

CERC Tariff Regulations provide truing up of capital expenditure, subject to prudence check, considering inter-alia change in laws. Considering the methodology followed by the CERC in the previous pay revision and the provisions of CERC Tariff Regulations, 2014, a regulatory asset has been created (Regulatory deferral account debit balance) towards the increase in O&M expenditure due to the pay revision. This will be claimed upon implementation of revision of pay scales and discharge of related liabilities.

(iii) Risks associated with future recovery/reversal of regulatory deferral account balances:

(i) demand risk due to changes in consumer attitudes, the availability of alternative sources of supply

(ii) regulatory risk on account of submission or approval of a rate-setting application or the entity’s assessment of the expected future regulatory actions

(iii) other risks including currency or other market risks, if any

(iv) Reconciliation of the carrying amounts:

The regulated assets/liability recognized in the books to be recovered from or payable to beneficiaries in future periods are as follows:

a) Regulatory deferral account credit balance - Note 36

b) Regulatory deferral account debit balance - Note 20

The regulated assets/liability recognized in the books to be recovered from or payable to beneficiaries in future periods are as follows:

c) Total amount recognized in the Statement of Profit & Loss during the year

The Company expects to recover the carrying amount of regulatory deferral account debit balance over a period of 4-5 years.

30. Contingent liabilities and commitments

A. Contingent liabilities

a. Claims against the company not acknowledged as debts

(i) Capital works

Some of the contractors for supply and installation of equipments and execution of works at our projects have lodged claims on the Company for Rs.12,753.91 crore (31 March 2016: Rs.8,768.55 crore, 1 April 2015: Rs.7,660.88 crore) seeking enhancement of the contract price, revision of work schedule with price escalation, compensation for the extended period of work, idle charges etc. These claims are being contested by the Company as being not admissible in terms of the provisions of the respective contracts.

The Company is pursuing various options under the dispute resolution mechanism available in the contracts for settlement of these claims. It is not practicable to make a realistic estimate of the outflow of resources if any, for settlement of such claims pending resolution.

(ii) Land compensation cases

In respect of land acquired for the projects, the erstwhile land owners have claimed higher compensation before various authorities/courts which are yet to be settled. Against such cases, contingent liability of Rs.349.31 crore (31 March 2016: Rs.332.34 crore & 1 April 2015: Rs.312.37 crore) has been estimated.

(iii) Fuel suppliers

a) Pending resolution of the issues with the coal companies, an amount of Rs.2,570.55 crore (31 March 2016: Rs.1,646.17 crore, 1 April 2015: Rs.Nil) towards grade slippage pursuant to third party sampling has been estimated by the Company as contingent liability. Further, an amount of Rs.661.50 crore (31 March 2016: Rs.209.89 crore, 1 April 2015: Rs.567.22 crore) towards surface transportation charges, custom duty on service margin on imported coal etc. has been estimated by the Company as contingent liability.

b) Pending resolution of the issues with a fuel company for supply of RLNG, an amount of Rs.4,173.57 crore (31 March 2016: Rs.323.87 crore, 1 April 2015: Rs.Nil) towards the take or pay claim has been estimated by the Company as contingent liability.

The Company is pursuing with the fuel companies, related ministries and other options under the dispute resolution mechanism available for settlement of these claims.

(iv) Others

In respect of claims made by various State/Central Government departments/Authorities towards building permission fee, penalty on diversion of agricultural land to non-agricultural use, non agricultural land assessment tax, water royalty, other claims, etc. and by others, contingent liability of Rs.253.15 crore (31 March 2016: Rs.312.94 crore, 1 April 2015: Rs.896.34 crore) has been estimated.

(v) Possible reimbursement

The contingent liabilities referred to in (i) above, include an amount of Rs.919.33 crore (31 March 2016: Rs.1,298.80 crore, 1 April 2015: Rs.1,172.56 crore) relating to the hydro power project stated in Note 10

(a) - Other financial assets, for which Company envisages possible reimbursement from the GOI in full. In respect of balance claims included in (i) and in respect of the claims mentioned at (ii) above, payments, if any, by the Company on settlement of the claims would be eligible for inclusion in the capital cost for the purpose of determination of tariff as per CERC Tariff Regulations subject to prudence check by the CERC. In case of (iii), the estimated possible reimbursement by way of recovery through tariff as per Regulations is Rs.7,373.54 crore (31 March 2016: Rs.2,051.77 crore, 1 April 2015: Rs.423.36 crore).

b. Disputed tax matters

Disputed income tax/Sales tax/Excise and other tax matters pending before various Appellate Authorities amount to Rs.6,934.90 crore (31 March 2016: Rs.7,499.37 crore, 1 April 2015: Rs.4,161.87 crore). Many of these matters were adjudicated in favour of the Company but are disputed before higher authorities by the concerned departments. In respect of these disputed cases, the Company estimate possible reimbursement of Rs.3,302.47 crore (31 March 2016: Rs.3,602.24 crore, 1 April 2015: Rs.1,508.46 crore). The amount paid under dispute/adjusted by the authorities in respect of the cases amounts to Rs.6,499.22 crore (31 March 2016: Rs.6,548.66 crore, 1 April 2015: Rs.3,254.52 crore).

c. Others

Other contingent liabilities amount to Rs.213.92 crore (31 March 2016: Rs.164.55 crore, 1 April 2015: Rs.309.36 crore).

Some of the beneficiaries have filed appeals against the tariff orders of the CERC. The amount of contingent liability in this regard is not ascertainable.

B. Contingent assets

While determining the tariff for some of the Company’s power stations, CERC has disallowed certain capital expenditure incurred by the Company. The Company aggrieved over such issues has filed appeals with the Appellate Tribunal for Electricity (APTEL)/Hon’ble Supreme Court against the tariff orders issued by the CERC. Based on past experience, the Company believes that a favourable outcome is probable. However, it is impracticable to estimate the financial effect of the same as its receipt is dependent on the outcome of the judgement.

a) Estimated amount of contracts remaining to be executed on capital account (property, plant & equipment and intangible assets) and not provided for as at 31 March 2017 is Rs.48,607.62 crore (31 March 2016: Rs.55,449.01 crore, 1 April 2015: Rs.58,398.91 crore). Details of the same are as under:

b) In respect of investments of Rs.2,418.01 crore (31 March 2016: Rs.1,910.35 crore, 1 April 2015: Rs.1,822.61 crore) in subsidiary Companies, the Company has restrictions for their disposal as at 31 March 2017 as under:

c) In respect of investments of Rs.2,785.99 crore (31 March 2016: Rs.1,794.94 crore, 1 April 2015: Rs.1,692.48 crore) in the joint venture entities, the Company has restrictions for their disposal as at 31 March 2017 as under:

d) In respect of other investments of Rs.1.40 crore (31 March 2016: Rs.5.14 crore, 1 April 2015: Rs.1.40 crore), the Company has restrictions for their disposal as at 31 March 2017 as under:

e) The Company has commitments of Rs.1,162.56 crore (31 March 2016: Rs.1,145.14 crore, 1 April 2015: Rs.131.82 crore) towards further investment in the subsidiary companies as at 31 March 2017.

f) The Company has commitments of Rs.3,082.90 crore (31 March 2016: Rs.2,759.91 crore, 1 April 2015: Rs.3,139.80 crore) towards further investment in the joint venture entities as at 31 March 2017.

g) The Company has commitments of Rs.498.60 crore (31 March 2016: Rs.498.60 crore, 1 April 2015: Rs.498.60 crore) towards further investment in other investments as at 31 March 2017.

h) The Company has commitments of bank guarantee of 0.50 % of total contract price to be undertaken by NTPC-BHEL Power Projects Private Ltd. to a cumulative amount of Rs.75.00 crore (31 March 2016: Rs.75.00 crore, 1 April: 2015: Rs.75.00 crore).

i) Company’s commitment towards the minimum work programme in respect of oil exploration activity of Cambay Block (100% owned by the Company) is Rs.Nil (31 March 2016: Rs.35.94 crore (USD 5.42 million), 1 April 2015: Rs.140.27 crore (USD 22.41 million).

j) Company’s commitment towards the minimum work programme in respect of oil exploration activities of joint venture operations has been disclosed in Note 63.

k) S.O. 254 (E) dated 25 January 2016 issued by the Ministry of Environment, Forest and Climate Change (MOEF), GOI provides that the cost of transportation of ash for road construction projects or for manufacturing of ash based products or use as soil conditioner in agricultural activity within a radius of hundred kilometres from a coal based thermal power plant shall be borne by such coal based thermal power plant and the cost of transportation beyond the radius of hundred kilometres and up to three hundred kilometres shall be shared equally between the user and the coal based thermal power plant. Further, the coal or lignite based thermal power plants shall within a radius of three hundred kilometres bear the entire cost of transportation of ash to the site of road construction projects under Pradhan Mantri Gramin Sadak Yojna and asset creation programmes of the Government involving construction of buildings, road, dams and embankments. Accordingly, the Company has commitment to bear/share the cost of transportation of fly ash from its coal based stations on lifting of the fly ash by the users. Based on an independent expert opinion, the Company’s obligation towards the transportation cost of fly ash will arise only on lifting & transportation of the fly ash. Further, the Company’s liability on this account, if any shall be first met from the ‘Fly Ash Utilization Reserve Fund’ maintained by the Company in terms of MOEF Notification dated 3 November 2009.

l) Company’s commitment in respect of lease agreements has been disclosed in Note 55.

31. Corporate Social Responsibility Expenses (CSR)

As per Section 135 of the Companies Act, 2013 read with guidelines issued by Department of Public Enterprises, GOI, the Company is required to spend, in every financial year, at least two per cent of the average net profits of the Company made during the three immediately preceding financial years in accordance with its CSR Policy. The details of CSR expenses for the year are as under:

32. Recent accounting pronouncements Standards issued but not yet effective:

In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, ‘Statement of cash flows’. The amendments are applicable to the Company from 1 April 2017.

The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and noncash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, to meet the disclosure requirement.

The Company is evaluating the requirements of the amendment and the effect on the financial statements is being evaluated.